RBA seriously considered increasing cash rate in August

THE RBA seriously considered an increase to the cash rate in August, minutes of the latest meeting show.

And the central bank has warned that cutting them before the end of the year could keep inflation up above its target midpoint until mid-2027.

The August 5-6 meeting minutes reaffirm Michele Bullock’s view that rate relief is unlikely to be delivered until 2025.

They also show the RBA pushing back on financial markets pricing in a rate cut before the end of the year.

“The case to raise the cash rate could be … supported by developments in financial conditions over preceding months,” the minutes say.

The make clear the RBA’s firm view that a rate cut this year would result in inflation staying higher for longer and not being returned to the midpoint of the 2-3 per cent target band until 2027.

“The staff’s forecasts also implied that the future path for the cash rate inferred from market pricing was not sufficient to return inflation to the midpoint of the target range in 2026,” the minutes said.

“Collectively, these considerations could be taken to imply that monetary policy should be tighter to achieve the board’s inflation objective.”

Release of the minutes comes after the governor and her colleagues appeared in front of the federal parliament’s house economics committee.

The official cash rate was a “very blunt instrument” and changes in interest rates affected people differently, Ms Bullock acknowledged in testimony to politicians.

“We know this, and we know that it hurts people with mortgages and debts, businesses with debts more … but it’s the only tool we have,” she said.

“The alternative of higher inflation for longer is much worse,” she said.

“High inflation hurts everyone, it reduces what people can buy with their wages, it erodes the value of savings, and it disproportionately hurts those on low or fixed incomes.”